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8/12/2019 Desirable Corp. Gov. - A Code.
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DESIRABLE CORPORATE
GOVERNANCEA CODE
DEFINITION OF CORPORATE
GOVERNANCE:Corporate
governance deals withlaws,procedures,practices and
implicit rules that determine a
companys ability to take informedmanagerial decisions vis--vis its
claimants-in particular,its
shareholders,creditors,customers,the
state and the employees.
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There is a global consensus
about the objective of good
corporate governancemaximising long-term
shareholders value.For a corporate governance code to
have real meaning,it must first focus on
listed companies which are financedlargely by public money and hence need
to follow codes and policies that make
them accountable and value-oriented to
their investin ublic.
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CONFEDERATION OF
INDIAN INDUSTRY
In 1996,CII took a special initiative on
corporate governance-the first
institutional initiative in Indian
industry and their objective was to
develop and promote a code for
corporate governance to be adopted
and followed by Indian companies,bethese in the private sector,the public
sector,banks or financial institutions,all
of which are corporate entities.
l k
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A National Task Force set up
with Mr.Rahul Bajaj,past
president,CII AND Chairman& Managing Director,Bajaj
Auto Limited.This Task Force presented the draft
guidelines and code for CorporateGovernance in April 1997at the National
Conference and Annual Session of CII.Thisdraft was then publicly debated and anumber of suggestions were received for theconsideration of the task force.
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Since 1974,CII has tried to
chart a new path in terms of
the role of an IndustryAssociation such as itselfThis Code of Corporate Governance
continues this process and takes it one step
further.Fortunately,there is very little
difference between the draft code released
in April 1997 and the final Code,which isnow published.
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Recommendation 1
No need of Two-Tier Board
Single board performs well it can maximise long term
shareholder value.
Should meet a minimum of six times a year, at an interval of
two months.
Agenda that requires at least half a days discussion.
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Recommendation 2
Any li sted companies with a turnover of
Rs.100crores and above should have
professional ly competent, independent, non-
executive directors
At least 30 percent of the board if the chairman of the
company is a non-executive director,
At least 50 percent of the board if the chairman and
Managing Director is the same person.
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Recommendation 3
No single person should hold directorships in
more than 10 listed companies.
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Recommendation 4
For Non-Executive directors to play a mater ial role
in corporate decision making and maximising
long term shareholders value they need..
Active participants in boards, not passive advisors. Clearly defined responsibil i tes within the board such as
the Audi t Committee.
Know how to read a balance sheet, Profi t and Loss
account, Cash floe statements and F inancial ratios. Some knowledge of Company Laws.
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Recommendation 5
To secure better efforts from Non-Executive
Directors companies should.
Pay a commission over and above the sitting fees
the use of the professional inputs.
Present commission of 1% of net profits (i f
managing director )
Or 3% (no managing director)
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Recommendation 6
Re-appointing members of the Board.
Give the attendance record of the concered dir ector in the
resolution that is put to vote.
One should not reappoint any director who has not been
present for 50 percent or more meetings
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Recommendation 7
Key information that must be reported to and placed
before the Board.
Annual operating plans and budgets with updated long termplans.
Capital Budgets, manpower and overhead budgets.
Quar ter ly results for the company as a whole and its operating
divisions or business segments. I nternal audit reports.
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Show cause, demand and prosecution notices received from revenue
authorities.
Fatal or serious accidents, dangerous occur rences, pollution
problems.
Default in payment of interest or non-payment Default in non-
payment of inter-corporate deposits.
Product l iabi l i ty claim.
Detail s of any joint venture or collaboration agreements. Substantial payment towards goodwil l , brand equity, or intel lectual
property.
Recruitment and renumeration of senior of f icers.
Labour problem. uar ter l detail s of forei n exchan e.
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Recommendation 8
Listed companies-turnover over 100crores or
paid up capital of Rs20crores should set up
audit committees within 2 years.
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Recommendation 9
Additional Shareholders Information
Monthly averages on share prices
Greater detail on Business segments
Consolidation-optional
Recommendation 10
Consolidation of Group Accounts
Voluntary Consolidation
-Definition of group
- Compliance Certificate
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Recommendation 11
Stock Exchanges and compliance certificate
Management- Fair presentation of financial statements
Accounting policies - Standard practices
Recommendation 12
For all companies with paid-up capital of Rs. 20crores or more,the quality and quantity of disclosure that accompanies a GDRissue should be the norm for any domestic issue.
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Capital Market Issues
Take-overs-The Take-over code
Mergers
Strategic acquisitions
Recommendation 13
Greater funding to corporate sector.
Creditors Rights
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Recommendation 14
FIs as pure creditors to re-write their covenants to eliminate havingnominee directors:-
- Except in the event of serious & systematic debt default
- Debtor company not providing six-monthly operational data.
Recommendation 15
More than one credit rating agency
Tabular format to company standings
Quantity & quality of disclosures.
Holders of company deposits.
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Concluding Remarks
Code of corporate governance cannot be static.
Large number of foreign portfolio investors
Entry of foreign pension funds
Private equity of leveraged buy-out funds.
No support by Indian FIs irrespective of performance.
More reliance on GDRs
Financial press getting stronger
Capital Account Convertibility.